InvestorQ : What services can small finance banks not provide?
Shreya Mashelkar made post

What services can small finance banks not provide?

Answer
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Nishita Gala answered.
1 year ago


The Reserve Bank of India (RBI), in 2014, allowed companies to apply for licenses for small finance banks as well as for payment banks. Small finance banks are niche banks that are allowed to take deposits from customers and unlike payments banks, they are also allowed to lend money to people.

In its guidelines for small finance banks, the Reserve Bank of India states the objective of a small finance bank to further financial inclusion by providing savings vehicle as well as credit supply to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.

Essentially, it is yet another step taken by the Reserve Bank of India to increase penetration of banking in the country. This means the license provided to small finance banks is an attempt by the central bank to brink the unbanked citizens of the country under the ambit of the Indian banking system. 

However, a few financial services small finance banks cannot provide are:

- They cannot provide large loans

- They also cannot float subsidiaries and deal in sophisticated products.